Already a member?

Upbeat 1Q at AFC, Guidance Upped - Analyst Blog

AFC Enterprises Inc.
(
AFCE
) posted adjusted earnings of 35 cents per share in the first
quarter of 2012, surpassing the Zacks Consensus Estimate of 31
cents as well as the year-ago earnings of 27 cents per share.

The year-over-year improvement was driven by strong same-store
sales. Moreover, the company has four strategic plans in place.
These include development of the Popeye's brand, more value-added
services through its restaurant concepts, strengthening of unit
economics with cost-saving initiatives and higher new unit
growth.

Quarter Highlights

The operator and franchisor of Popeye's restaurants reported
total revenue of $52.8 million, up 12.8% from the year-ago quarter
on positive same-store sales and unit growth.

AFC Enterprises' total revenue primarily comprises
company-operated restaurant sales (up 12.5% year over year at $19.8
million), franchise revenues (up 13.6% at $31.7 million) and rent
and other revenues (flat at $1.3 million).

The company's global same-store sales spiked 7.4%, resulting
from an 8.1% upside in domestic same-store sales and a 2.3% jump in
international same-store sales.

The company managed to record increased restaurant operating
profit despite the adverse effect of 2.5% commodity inflation.
Strong sales performance coupled with supply chain as well as cost
savings aided the operating profit growth of 13.6%.

Store Update

The Popeye's system opened 26 restaurants in the first quarter
of 2012, 11 of which were domestic and 15 international. At the end
of the quarter, the company had 2,044 units among which 40 were
domestic company-owned outlets, 1,589 franchised domestic units and
415 franchised international units.

The company permanently closed 17 units, resulting in 9 net
openings in the first quarter of 2012.

Financial Position

AFC Enterprises ended the quarter with cash and cash equivalents
of $22.0 million and shareholders' equity of $20.4 million.

Outlook

The company now expects global same-store sales growth in the
range to 4% to 5% (previously guided 3% to 4%) for 2012. Adjusted
earnings per share are projected at $1.13 to $1.16 (previously
guided $1.09 to $1.13), including approximately a penny for the
53rd week of operations in fiscal 2012.

The world's second largest quick-service chicken restaurant
chain expects to open 135 to 155 restaurants in 2012. It also looks
forward to net restaurant openings in the range of 60-100.

AFC Enterprises also reiterated its plan to buy back
approximately $15 million in outstanding shares in 2012.

Our Take

With a strong sales momentum, solid pipeline of products, market
share gain in the chicken category, revamp of unit's outlook and
acceleration of unit growth AFC Enterprises is well positioned to
perform better over the rest of 2012. The increased guidance is a
reflective of the company's steadily improving
fundamentals.

On the commodity front, management foresees the ongoing pressure
to relax in 2012 and likely result in flat year-over-year commodity
inflation. However, management expects a higher effective tax rate
in 2012 compared with 2011 that may in turn weigh on the company's
net earnings.

AFC, which competes with companies like
Kona Grill Inc.
(
KONA
), currently has a Zacks #2 Rank (short-term Buy rating). We are
maintaining our long-term Neutral recommendation on the stock.

Please note that once you make your selection, it will apply to all future visits to NASDAQ.com.
If, at any time, you are interested in reverting to our default settings, please select Default Setting above.

If you have any questions or encounter any issues in changing your default settings, please email isfeedback@nasdaq.com.

Please confirm your selection:

You have selected to change your default setting for the Quote Search. This will now be your default target page;
unless you change your configuration again, or you delete your
cookies. Are you sure you want to change your settings?